Anglo American proposes portfolio changes after rejecting BHP's second bid

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Anglo American proposes portfolio changes after rejecting BHP's second bid
Credit: © Reuters.

Anglo American on Monday rejected a raised takeover offer of £34 billion ($42.67 billion) from BHP Group, saying that the world's largest listed miner "continues to significantly undervalue" the company.

Previously, the London-listed miner had dismissed BHP's initial $39 billion all-share proposal made on April 25, calling it opportunistic and arguing it would dilute the upside value for its shareholders relative to BHP's.

The new offer, unveiled on May 7, was 10% higher than the first, increasing the merger exchange ratio by 15% to boost Anglo American shareholders' aggregate ownership in the combined group from 14.8% to 16.6%.

In addition, Anglo proposed significant portfolio changes in response to BHP’s bid. These include reducing spending on Woodsmith and divesting or demerging its metallurgical coal, nickel, diamonds, and platinum assets.

The remaining entity, representing approximately 73% of gross NPV10, would focus on high-quality copper and iron ore, along with polyhalite.

“Arguably, just reducing the spend on Woodsmith (~US$1.8B) could be enough for a reasonable re-rating, and the intention to accelerate strategic changes is likely to be well-received, albeit the company would be less differentiated vs. peers,” analysts at BMO Capital Markets said in a note.

Shares in Anglo American fell 1.7% in London trading.

Meanwhile, analysts at RBC Capital Markets said BHP's revised offer values Anglo American at 2,840p based on yesterday's closing prices.

However, RBC values Anglo American shares at 3,100p, assuming the company adopts a similar strategy to BHP, which would involve maintaining a core portfolio of copper, metallurgical coal, and polyhalite while gradually divesting other assets.

“Although the simplified structure announced today is different and would lead to a smaller multiple re-rating than assumed in our base case forecasts, we still expect this to lead to a higher value than embedded in BHP's latest offer,” RBC noted.

Later on Monday, Reuters reported that BHP Group is likely to improve its $43 billion takeover offer for Anglo American for a second time, potentially including cash, investors in both companies said.

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